Much of the monitoring work takes place in higher education institutions (including Melbourne University and Sydney University), where more than 90,000 students from mainland China are potentially exposed to ideas and activities not readily available at home.

''I was interrogated four times in China,'' said a senior lecturer at a high-ranking Australian university. He said he was questioned by China's main spy agency over comments he made at a seminar about democracy at the University of NSW.

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''They showed me the report,'' he said. ''I can even name the lady who sent the report.''

Such networks are driving the Australian Security Intelligence Organisation to build significant new counter-intelligence capabilities.

''They have more resources in Sydney University than we do,'' an Australian official said.

The shift under way in Australian counter-intelligence priorities potentially heralds the end of an era that has been overwhelmingly dominated by counter-terrorism.

It illustrates the complexities of a rising China, whose leaders have recently recommitted to economic reforms while also inoculating their Leninist political system against change and Western influence.

China's electronic espionage capabilities are broadly known, with Chinese servers being used to penetrate Australia's largest companies, most senior politicians and even ASIO's new high-tech headquarters in Canberra, which remains unopened as a result. But China's human intelligence and ''influence'' networks have proven more difficult to identify and respond to.

At the overt level, education counsellors in diplomatic missions organise Chinese-born students into associations through which they can provide support services.

In part, they were providing assistance and a sense of community that many Australian universities were failing to deliver, said John Fitzgerald, of Swinburne University.

''Australian universities don't know what it means to host international students properly,'' said Professor Fitzgerald, an expert on Chinese communities in Australia. ''It means that students from China feel they are being hosted by the Chinese government in Australia.''

The Chinese government-led student associations are also used to gather intelligence and promote core political objectives in parallel with other informant networks handled through the political sections of diplomatic missions, according to Chinese officials, Australian officials and members of Australia's Chinese community. Chen Yonglin, a Chinese diplomat who defected to Australia in 2005, said on Sunday that students were an important part of embassy and consular work.

Mr Chen, now a businessman in Sydney, confirmed that Chinese diplomats set up Chinese student associations at each university, appointed their leaders, and ensured they were well funded.

''The students are useful for welcoming leaders at airports and blocking protest groups from sight, and also collecting information.''

Jocelyn Chey, a former senior diplomat in Beijing and Hong Kong who is a fellow at the Institute of International Affairs and visiting professor at the University of Sydney, said: ''It's quite clear that a large part of the business of Chinese diplomatic missions here is just keeping tabs on their citizens.''

Dr Chey said she had watched the networks become ''increasingly complex'' since the Chinese embassy opened its doors in Canberra in 1973.

The on-campus informant networks are constraining the conversations and actions of Chinese-born students, who constitute the largest international market for Australian universities.

In one case, security officials told parents in China to constrain the activities of their son, after informants reported he had seen the Dalai Lama in Australia. According to the lecturer who was interrogated in China, the person who informed on his comments at the University of NSW also fabricated information about him making donations to a democracy organisation.

John Garnaut is Fairfax Media's Asia Pacific editor. Most recently he was China correspondent. John graduated in law and arts from Monash University and worked for three years as a commercial lawyer at Melbourne firm Hall & Wilcox before joining the Sydney Morning Herald as a cadet in 2002. He became the Economics Correspondent in the Canberra press gallery and in 2007 was posted to Beijing.